Angels R Us is currently operating at 100% capacity and incurred the following costs during the first month of operations: If the company has ending inventory of 1,600 units for the month, what would be the difference in inventory reported on the balance sheet between absorption and variable costing?
A)Absorption would report $8,000 more in inventory than variable costing.
B)Absorption would report $8,000 less in inventory than variable costing.
C)Absorption would report $2,400 more in inventory than variable costing.
D)Absorption would report $2,400 less in inventory than variable costing.

Question

Angels R Us is currently operating at 100% capacity and incurred the following costs during the first month of operations:  If the company has ending inventory of 1,600 units for the month, what would be the difference in inventory reported on the balance sheet between absorption and variable costing?
A)Absorption would report $8,000 more in inventory than variable costing. 
B)Absorption would report $8,000 less in inventory than variable costing. 
C)Absorption would report $2,400 more in inventory than variable costing. 
D)Absorption would report $2,400 less in inventory than variable costing.

Quizplus · Accepted Answer

$100,000 ÷ 20,000 = $5 per unit
$5 x 1,600 = $8,000
Fixed Manufacturing costs ÷ unit produced = Fixed manufacturing cost per unit
Fixed manufacturing cost per unit x end inventory units = difference

Angels R Us Is Currently Operating at 100% Capacity and Incurred